Wednesday, October 21, 2015

J'accuse George Osborne

The time has come to state an unpalatable fact which I
nevertheless believe to be true.

I believe that George Osborne, our Chancellor of the
Exchequer, has become unwittingly a pawn in the facilitation of banking crime.

I do not know what other explanation fits the facts.

I say ‘unwittingly’ because I do not believe he is doing
this maliciously, he is doing it because he simply doesn’t know any better.

He is bending to every protestation of innocence the
bankers pour into his ear. He is listening, willingly, to the entreaties of the
banking PR milieu, and he is happy to entertain the applications of the British
Banking Association when they assure him that everything in the banking garden
is rosy!

I think part, if not quite a lot of it, has to do with
his class, background and education, and that leads him , I believe, to look
upon bankers and the banking industry, as a group of honourable men and women,
who are working for the benefit of UK plc.

He is, I suspect, I subscriber to the generally-held
belief, common among senior bankers that they are a protected species, and that
they are incapable of doing wrong. If, for whatever reason, a case develops
which ends up with a banker going to prison, then George and his friends in the
financial sector will simply refer to the ‘rotten apple’ theory, as if that
explains everything.

I have been keeping an eye on George for some time!

I have also been monitoring the developments of the de-regulatory
changes which are being inexorably introduced in the banking sector, making
life even easier for the bankers to accept foreign, dirty and criminal money,
without having to ask too many questions.

There is a great deal of very questionable cash flowing
around the world, like a ‘ball of hot money’, looking for a temporary home. I
am using the motif for dirty money first coined by Professor Tom Naylor in his
wonderful book ‘Hot Money and the Politics of Debt’, and never has it been more
accurate.

We are talking about billions and billions of pounds,
dollars, and euros, and it needs protecting, to keep it out of the purview of
international law enforcement. By far the greatest volume of this dirty
criminal cash emanates from Russia and China, closely followed by other Far
Eastern kleptocracies, Middle East bribe-fest centres and emerging market
business centres like India and Pakistan whose successful entrepreneurs don’t
feel the need to pay taxes.

This money which represents the proceeds of wholesale tax
evasion, state corruption, criminal capital flight, drug trafficking,
cyberfraud, people-trafficking and wholesale money laundering, is generically
known as ‘the proceeds of crime’, and it emanates from a variety of dubious
activities and processes.

Much of it is money generated from the exploitation of
the badly-enforced laws of the countries from whence it comes, and much of it
should, by right, be being used to support and benefit the general population
of those countries by paying for health services, education, hospitals, roads,
and other infrastructure services.

This money, sequestered by the illicit activities of
crooked players is being squeezed into the secret underworld of shadow banking,
and represents a vast ball of hot and homeless money which needs to find a
home, and the longer it can be kept out of the banking system, the less value
it has to the criminal who stole it in the first place.

This money provides the fundamental and underlying
motivator for the British banking sector of the City of London, and it
represents a most tempting target for the itchy palms and the sticky fingers of
the denizens of Threadneedle Street and Canary Wharf!

They couldn’t give a monkeys’ about the fact that it is of
criminal origin, and thus denied to them by a raft of international laws and
regulations. These are not the sort of people to let mere rules get in the way
of their achieving their goals.

The Times reported on October 20th that millions
of pounds of dirty money has been laundered through London because the ‘golden
visa’ system is so open to abuse.

Tier 1 Investor Visas which give guaranteed British
residency in return for a £2 million investment are an open sesame for money
laundering.

Since their introduction in 2008, 3,048 such Visas have
been issued, of which over 60% have been given to wealthy individuals from
Russia and China.

In 2014 of the 1,173 visas issued, half went to wealthy
Chinese citizens, just at the same time as Beijing was seeking to trace vast
amounts of money believed to have been stolen through corruption by bent public
officials.

Transparency International, a major NGO dedicated to
identifying and exposing corruption has reported that ‘...at least £3.15
billion has entered Britain as a result of the Visa scheme...’ T.I estimates
that a significant amount of this money represents corrupt proceeds stolen from
China and Russia.

Now, here is the rub!

Before any bank can accept one penny of any proposed
investment, it has to satisfy itself of the legitimacy of the provenance of the
money. This is an obligation placed upon it by law, and the bank has the
primary responsibility to ensure that it has completed all the necessary due
diligence, and is satisfied that the money is not of suspected criminal origin,
before it can accept it legitimately!

It has to carry out detailed ‘Know Your Customer’
investigations, and particularly where the proposed client could be what has
been known as a ‘Politically Exposed Person’ or PEP, it has additional due
diligence enquiries to complete before it accepts the money.

Of course, as you can imagine, such requirements are
strictly adhered to by British banks, who are famous for their adherence to
laws and dedication to undertaking clean and honest business!

In the article in the Times, a representative of the
British Banking Association, the talking shop for the banking industry has
said; ‘...There are certain jurisdictions that pose challenges for banks in
determining sources of funds. We would welcome and improvements to the Tier 1
Visa scheme that enhance transparency and enable banks to fulfil their
financial crime responsibilities...’

Quite what this civil service-inspired piece of
wabble-babble is meant to mean is unclear, but the message is that the banks
would like to be able to have it easier to accept the money.

How much easier it needs to be is not certain as the
banks do not seem to have any trouble in accepting the proceeds of this dirty
money tsunami. The report last week by the National Crime Authority made it
clear that the volume of criminal money laundering being undertaken in the UK
poses a major threat to UK national security.

At present however, there are no live investigations into
the flows of corrupt funds from China being undertaken in the UK, despite the
fact that the Beijing authorities are running an international operation
torecover an estimated £82 billion in
stolen funds. This does not include the further £31 billion of corrupt funds
leached out of Russia!

Well, how does the Home Office try and ensure that dodgy
money doesn’t come into the UK via the Visa system? What fool-proof systems has
it put in place to stop the flow of blood money?

A Home Office spokesman quoted in the Times said:

“...We require an applicant (for the Visa system) to have
a UK bank account – and therefore pass the bank’s diligence checks – before they
apply for a Visa...’

I kid you not!

You couldn’t make this sort of crap up (that is of course
unless you were a civil servant in the Home Office). Only such a person, who
had had their brain surgically removed ad reinserted in their rectum could come
out with a quote like this! And the best bit is – they see no irony in the
statement!

So there you are. You want to come to the UK and you are
willing to pay £2 million for the privilege. Now, on a balance of
probabilities, there is a high degree of likelihood that you may have other
funds secreted about your person, but before the UK Government will let you in,
you have to have a bank account already set up, so that when you arrive, hey
presto, you are already equipped to give the money to George’s friends in the City.

This really is the most insouciant rubbish, but if you
see no evil, then you will hear no evil, and that is where George re-enters the
tale.

Back
in 2013, the Parliamentary Commission on Banking Standards said that the old regulatory
regime had failed to provide a system that could hold senior managers of
financial institutions to account for banking failures, including those that
were brought to light in the financial crisis.

As a
means of deflecting attention from what had become a very serious target for
public anger, the Government proposed a new approach, which would hold senior
officials of banks responsible for banking failures unless they could
demonstrate that they were unaware of any wrongdoing while they were in charge.

This
would have been an excellent step towards requiring bankers to demonstrate that
for once, they were taking proper steps to ensure public accountability and
that they were now accepting their responsibilities, and not just trousering
vast sums of cash.

Well, you can imagine the angst this provision caused
among the suits in the suites, and they immediately instructed their lobbying
agencies, their PR teams, and their learned friends to find ways of getting
this, otherwise reasonable requirement, changed.

Well, bless him, George has now bowed to their demands.
No doubt he reckons that enough water has flown under the bridge since the
Banking Commission’s deliberations, and that most people will have forgotten
the awful stories and tales of incompetence, crime, negligence, recklessness
and downright stupidity that daily flowed from the Committee room.

But these applied only to bankers, you know, the nice
chaps in the suits, many of whom went to the right schools and universities,
indeed, some of them may have even been contemporaries of George at Oxford, and
like I said earlier, when it comes to dealing with members of that class,
George hears and sees no evil.

So now,
George has scrapped the controversial plans to make senior executives in the
financial services industry prove they were unaware of any wrongdoing on their
watch.

The
about-turn, which was unveiled by the Treasury on Monday night, forms part of
the Government's Senior Managers and Certification regime, where top managers
across the financial services industry will be held accountable for regulatory
failures under new rules designed to stamp-out wrongdoing and recklessness.

The
initial proposals imposed a requirement that senior staff should demonstrate
that they had not known that wrong-doing was being carried on..

However,
following pressure from the industry and warnings that the rules would deter
top talent from coming to the City, it will now be up to regulators to prove
that steps to prevent regulatory breaches were not followed.

Yet
again, the usual bromide about top talent being deterred from a following a
City career was trotted out, and yet again, George swallowed it.

Regulators
will now have to prove wrongdoing as Treasury extends plans to make top
executives accountable for failures on their watch across the financial
services industry

Executives
will now have a statutory "duty of responsibility" that will require
them to take steps to prevent regulatory breaches.

Andrew
Bailey, the Bank of England's governor for prudential regulation, said he
"strongly support[ed]" the Treasury's announcement, and denied that
it represented a watering-down of the initial proposals.

Well
no, that’s just not true!

You
see now, any banker who might be unfortunate enough to have to be investigated
for any breach will simply be told by his lawyers to maintain his right to
silence and to refuse to answer any questions that might tend to incriminate
him.

Bailey
says; "The introduction of the ‘duty of responsibility’ in place of the
'presumption' makes little difference to the substance of the new regime. Once
introduced, it will be for the regulators (rather than the senior manager) to
prove that reasonable steps to prevent regulatory breaches were not taken. This
change is one of process, not substance. The focus for firms and individuals
should be on complying with both the letter and the spirit of the rules rather
than considering ways to circumvent them.”

Andrew
Bailey can call it what he likes, but it merely goes to prove what I have said
ever since this provision was first introduced, which is that it will never,
ever be applied. Regular readers of this blog will recall I have made that
point for months and now George, with this small amendment has confirmed my
argument, by giving the bankers a ‘Get out of Jail Free’ card!

In order
for a banker to be held liable under the new ‘negligence’ provisions, that case
had to demonstrate that the banker knew that what was happening to his bank was
likely to cause it to collapse, and that he did nothing relevant to prevent it.

It
would have been up to the banker to prove that he did not know the relevant circumstances,
but now he doesn’t have to, and of course will simply say nothing. So the
entire provision, over which there was so much soul-searching and whingeing,
has now been repealed, and the bankers are off the hook once again.

The
move was welcomed by the industry. Oliver Parry, senior corporate governance
adviser at the Institute of Directors, who maintained;

“The
FCA is right to drop the ridiculous ‘reverse burden of proof’ requirements from
the Senior Managers Regime. Scandals across the banking industry such as Libor,
foreign exchange rate-rigging and PPI misselling have given bankers a toxic
name and we support the regulators as they seek to address what went wrong
before, during and after the financial crash.

"This
rule, however, which was both unworkable and excessive, was a step too far. It is
encouraging to see policymakers heed the advice of the IoD, and others, who
raised concerns when the rules were first proposed."

A
spokesman for the Treasury said the move would help to “restore trust in
Britain’s financial services sector and would ensure that “tough standards of
personal responsibility and accountability apply beyond banking and across the
entire financial services industry”.

Yes,
well only a Treasury burble-speak policy wonk could come out with a piece of
gloop like that!

What
George has done is to water down yet again the regulatory provisions which were
intended to bring a real sense of purpose to the regime of banking supervision.
The real problem is that anyone with half an ounce of common sense could see
that the proposed provisions put the spotlight of responsibility firmly on the
men in the suits, and for the first time, gave prosecutors a chance of bringing
these men to justice.

Well,
we can’t have that can we? I mean, how could the protected species go about
their daily gilded existence, all the time wondering if they were going to be
given their just deserts for a change?

No,
time to go and have a chat to George, who had already agreed to other changes
designed to water down the regulatory process in the name of releasing ‘red
tape’!

That
is what I mean when I say that George is unwittingly helping members of his
class and milieu to facilitate financial crme. George likes bankers because
they are nice chaps, and he wants them to help grow the economy. If that means
bringing in a lot of dirty money, well as long as no-one rubs his nose in it, George will more than likely be prepared
to turn a blind eye.

All
the time his Treasury officials are telling him that they are working to help
to “restore trust in Britain’s financial services sector and ensuring that
“tough standards of personal responsibility and accountability apply beyond
banking and across the entire financial services industry, well then, no doubt
George will believe them!

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!